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What are Mortgages, Trust Deeds, and Promissory Notes?

A mortgage is a real estate lien on your property, placed by a bank or financial institution, for money that you borrowed from the financial institution in order to pay for the property. When a mortgage has been signed and approved, you will have the obligation to pay back the loan for the property, plus interest, and the financial institution will have the right to foreclose your property if you do not repay the mortgage.

The two documents included in a mortgage transaction are the promissory note and the mortgage (or deed of trust):

Promissory note - The promissory note is a contract. Under the promissory note, you (the borrower) agree to repay the financial institution (the lender) for the money borrowed, plus the interest agreed to. A promissory note holds the borrower responsible for repaying the loan even if the borrower sells the property.

Mortgage (deed of trust) - A mortgage or deed of trust document acts as a lien on the property. This means that if you do not repay the loan, the financial institution may force repayment by selling your property. Thus, the mortgage document guarantees that the financial institution will get their money back even if the borrower does not pay.

Signing the Property Purchase Contract Prior to Obtaining a Mortgage

If you do not have enough cash on hand to pay for the property (most people don't!), you should state in the purchase contract that you would purchase the property contingent on getting a mortgage with a particular interest rate. When the seller accepts the offer, you should apply for a mortgage as soon as possible. Once you qualify for a mortgage, you are bound under the purchase contract to buy the house.

Preparing for a Mortgage Application

When preparing to apply to a financial institution for a mortgage, you should have the following information available for inspection:

Value of your current assets (such as other property you own, cars, etc.)

Value and location of your debts

Employment history and current income

How you plan on paying the down payment for the property

Where the money for the down payment came from

Credit History - If you are not certain of your credit rating or history, you should get a copy of your credit report and clear up any problems before applying for a mortgage. A good credit rating will likely provide you with a better chance of approval and a lower interest rate.

Time - The financial institution can take anywhere from one day to many months to approve your mortgage. Be certain to communicate with your financial institution so they are aware of any expiration date on the property purchase contract.

Mortgage Interest Rates

Mortgages come in many forms and shapes. Whatever your financial situation, you can usually find a mortgage package right for you. All mortgages, however, will require you to pay interest on the money borrowed:

Fixed Interest Rate - Under a fixed rate loan, the financial institution cannot change the interest rate during the term of the loan.

Adjustable Rate Loans - There are many types of adjustable rate loans. Generally, an adjustable rate loan allows the financial institution to change some term of the loan during the life of the loan.

Should I Consult an Attorney about my Mortgage Issues?

Buying and financing a piece of real estate can be one of the most important experiences in your life. A mortgage lawyer can advise you of the different mortgage financing options for this financial endeavor. An attorney can also review any financial documents, and advise you about your obligations and the best way to proceed. Advice from a mortgage attorney may save you money on your loan or refinance.